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TMI Blog2021 (9) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... and it relate to assessment years 2010-2011 and 2011-2012. Appeal in ITA No.1592/Bang/2017 is filed by the Revenue for the assessment year 2011-2012. The assessee has also preferred a Cross Objection in CO No.34/Bang/2019 for assessment year 2011-2012, which is supportive of the issues decided by the CIT(A) in favour of the assessee. These appeals and cross objection are arise out of two separate orders of the CIT(A), both dated 27.04.2017. 2. At the time of hearing before us, the learned AR submitted that he is not pressing appeal in ITA No.1590/Bang/2017 for Asst.Year 2010-2011. Accordingly, this appeal is dismissed as not pressed. 3. The grounds raised by the Revenue in ITA No.1592/Bang/2017 for Asst.Year 2011-2012, read as follows:- 1. Whether on facts and in circumstances of the case and in law, the CIT(A) was justified in not applying the provisions of Rule 8D2(ii) after upholding the applicability of section 14A. 2. Whether on facts and in circumstances of the case and in law, the CIT(A) was justified in partly allowing the disallowance made by the AO without arriving at the reconciliation of interest to be considered for the purpose of disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies on a cost reimbursement basis in the financial statements for the above AY 2011-12. Hence the additions made u/s 14A rwr 8D is wrong and beyond the jurisdiction of the learned AO. 8. The huge additions made u/s 14A rwr 8D by the learned AO and modified by the Hon ble CIT[A) is without application of mind and the both the orders passed by the learned AO u/s 153A rws 143(3) and that of the Hon'ble CIT[A), without going into the details of cross charging of expenses in respect of the entities in whom the investments have been made and the income from which is claimed as exempt u/s 10 of the IT Act as clearly stated in the financial statements of the appellant for the concerned AY 2010-11, are prejudicial against the appellant to raise huge demand. 9. The learned AO and the Hon'ble CIT[A) failed to note the cross charges of expenditure made by the appellant in the financial statements in respect of the entitles in which investments are made by the appellant. Hence the question of invoking the provisions of Section 14A DOES NOT ARISE because heading of the section 14A states Expenditure incurred in relation to income not includible in total income. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed. 6. Ground Nos.5, 6 to 9 are with regard to the sustaining of addition u/s 14A of the Act r.w.s. 8D of the I.T.Rules. The assessee is having following investments:- Partnership Firms ₹ 924.79 crore Mutual Funds ₹ 4.07 crore Shares in Indian Companies ₹ 46.69 crore Total ₹ 975.55 crore 6.1 The total fund available with the assessee is at ₹ 1141.66 crore. The assessee has used ₹ 975.55 crore towards various investments as shown above, the income from which are not liable for tax. As such the Assessing Officer invoked the provisions of section 14A r.w. Rule 8D and computed the disallowance as follows:- Rule 8D(2)(i) Nil Rule 8D(2)(ii) ₹ 36,38,84,940 Rule 8D(2)(iii) ₹ 3,57,62,950 7. On appeal, the CIT(A) sustained the above amount, by observing as under:- Non convertible debentur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT Vs. Kingfisher Finvest India Ltd. (2020) 121 Taxmann.com 233. We have gone through the said decision and the same relate to a case where no dividend income was received. In this case, the assessee has earned dividend income and hence, in our view the said decision is not applicable to the facts of the present case. 5. We notice that the own funds available with the assessee was ₹ 355.57 crores while the value of investment in partnership firm mutual funds and shares aggregated to ₹ 251.82 crores. In view of the decision rendered by Hon ble Karnataka High Court in the case of CIT Vs. Micro Labs Ltd. (2016) 383 ITR 490, no disallowance out of interest expenditure is called for. For the sake of convenience, we extract below the observations made by Hon ble Karnataka High Court in the above said case. 40. We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paper book and the same is enclosed as ANNEXURE-III to this order. It is clear from the said statement that the availability of profit, share capital and reserves surplus was much more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is required to segregate the expenses debited to the Profit and Loss account as relatable to taxable income and exempted income . Hence, what is required to be considered for the purpose of section 14A of the Act is the amount finally debited to profit loss account. The actual expenses incurred by the assessee would have been reduced by the amount cross charged to the partnership firms and the net amount would have been charged to the profit loss account. The disallowance u/s 14A of the Act is called for out of the above said net amount. 8. We notice that the assessee has earned exempt income as detailed below: Share profit from partnership firms - ₹ 2,46,49,618/- Dividend from mutual funds - ₹ 17,91,146/- ₹ 2,64,40,765/- The dividend received from mutual funds also does not require much expenditure for the assessee. In respect of partnership firms, we have earlier noticed that the services rendered in respect of partnership firms have been cross charged by the assessee. Hence over all supervi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balance Sheet placed in the paper book. On a perusal of the same, we notice that the Ld. A.R. has considered only the value of investments made in shares for advancing this argument and did not consider the value of investments made in partnership firm. We have noticed earlier that the exempt income earned by the assessee included share income from partnership firm , which is exempt u/s 10(2A) of the Act. Hence, we are of the view that the investments made in partnership firm are also required to be considered for comparing the value of investments with the available own funds. We notice that the value of investments held by the assessee as at the year end is ₹ 1,444.46 crores, whereas the own funds available with the assessee was ₹ 585.21 crores only. Hence, it cannot be said that the own funds available with the assessee was more than the value of investments. Hence, this argument of the assessee also fails on the above said facts. 8. Before addressing ground no.7, we prefer to adjudicate two more contentions urged orally by Ld A.R. The first contention of Ld A.R was that the share income from partnership firm should not be considered as exempt income, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision rendered by Hon ble High Court of Delhi in the case of Joint Investment Private Limited Vs. CIT 372 ITR 694 and also the decision rendered by Mumbai bench of Tribunal in the case of Future Corporate Resources Limited Vs. DCIT (ITA No.4658/Mum/2015 dated 26.7.2017). 11. The Hon ble Delhi High Court has considered an identical issue in the case of PCIT vs. Caraf Builders Construction (P) Ltd (2019)(101 taxmann.com 167) and has held as under:- 25. Total exempt income earned by the respondent-assessee in this year was ₹ 19 lakhs. In these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from ₹ 75.89 crores to ₹ 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. The Mumbai bench of Tribunal has also taken an identical view in the case of Future Corporate Resources Ltd (supra) and the relevant observations made by the Tribunal in the above said case are extracted below:- 10. Coming to the second argument of the assessee, the assessee argued that it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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